State Farm: $6.3B P/C Underwriting Loss, $2.1B Operating Loss in 2008
February 27, 2009
The net worth for the State Farm group decreased in 2008 by $10.4 billion to end the year at $53.3 billion, the company reported.
The primary reason for the decrease was the $9.2 billion decline in the value of the property/ casualty companies' unaffiliated stock portfolio. which was driven down by general market conditions.
State Farm reported an after-tax net loss of $542 million in 2008, compared with $5.46 billion of net income in 2007. The after-tax net loss in 2008 was driven by the P/C companies' pretax operating loss, which was partially offset by income tax recoveries. The company said that extraordinary levels of catastrophe losses adversely impacted operating results in 2008.
The operating loss for State Farm follows five consecutive years of net income. The average annual amount of net income for State Farm through the first nine years of this decade is $1.6 billion.
"It is imperative in our business to achieve financial results that enable us to grow and maintain the necessary level of financial strength that ensures long-term sustainability. As a result, one should not attribute too much significance to short-term operating results without first considering the level of financial strength," said Michael Tipsord, vice chairman, treasurer and chief financial officer.
"This concept is as relevant to 2007 when State Farm achieved record levels of profit as it is to 2008 when we experienced significant losses. The more important message is that the positive results from 2003 through 2007 enabled State Farm to endure a record level decline in net worth during 2008 and still end the year with over $53 billion in net worth."
The P/C companies reported a pretax operating loss of $2.1 billion in 2008, which includes the underwriting loss of $6.3 billion, partially offset by investment and other income of $4.2 billion. This compares with a pretax operating profit of $5.1 billion in 2007, which included investment and other income of $4.6 billion and an underwriting gain of $621 million.
The State Farm group's net worth is also affected by the results of operations of non-P/C affiliates, which resulted in a loss for the year of $244 million.
Total revenue, which includes premium revenue, earned investment income and realized capital gains (losses), was $61.3 billion for 2008 compared with the 2007 figure of $61.6 billion.
State Farm's insurance operations consist of eight P/C insurers and three life insurers.
Auto -- State Farm's auto insurance business represents 63 percent of the P/C companies' combined net written premium. Earned premium was $30.3 billion, an increase of 0.3 percent from 2007. The incurred claims and loss expenses were $25.6 billion. The underwriting loss was $2.7 billion.
Comparable 2007 figures were: earned premium, $30.2 billion; incurred claims and loss expenses, $24.4 billion; underwriting loss, $659 million.
Homeowners, CMP, Other -- The net written premium for State Farm Fire and Casualty Co., State Farm Lloyds, State Farm General Insurance Co. and State Farm Florida Insurance Co. represents 33 percent of the P/C companies' combined net written premium. Earned premium was $16.0 billion, an increase of 0.5 percent from 2007. The incurred claims and loss expenses were $15.1 billion. The result was an underwriting loss of $3.9 billion.
Comparable 2007 figures were: earned premium, $15.9 billion; incurred claims and loss expenses, $10.9 billion; underwriting gain, $462 million.
Source: State Farm
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